Accounting equation

Assets = Owner’s Equity + Liabilities

The above accounting equation expresses the fact that everything the business owns has been supplied by the owner (owner’s equity) and by external source (liabilities).

Elements of Accounting Equation

Assets

Assets are items of value owned by the business. Examples include

Building
Machinery
Motor vehicle
Cash at bank
Cash in hand
Stock
Debtors (people who own money to the business)

Liabilities

These denote the amounts which the business owes to others. Examples include

Creditors (people to whom the business owes money)
Bills payable
Bank overdraft
Bank loan

Owner’s equity

The funds of a business provided for by its owners.
Owner’s equity = Assets – Liabilities

Owner’s equity increases by	Owner’s equity decreases by
Profits	Losses
Additional investment into the business	Drawings